U.S. Money Funds Slashed Loans to French Banks by 97% in 2011

By Radi Khasawneh and Alberto Fuertes -
Jan 13, 2012

U.S. money-market funds reduced
their lending to French banks by 97 percent in 2011, according
to an analysis of reports from the eight largest U.S. funds
published in today’s Bloomberg Risk newsletter.

The funds owned $2.3 billion of French bank certificates of
deposit, time deposits, commercial paper and repurchase
agreements in December, a drop of 58 percent from the previous
month and down from $82 billion at the end of 2010. The funds
shifted investments to Japanese, American and Swiss banks, with
increases of between 10 percent and 15 percent.

“For now I don’t think we’re likely to see money market
investors in the U.S. moving money back into the euro zone,”
said Alex Roever, head of short-term fixed-income strategy at
JPMorgan Chase & Co. in New York. “However, the data we’re
seeing is suggesting that maybe the market’s willing to take a
pause here.”

BNP Paribas SA (BNP), France’s biggest bank by assets, had the
largest decline, with a $3.5 billion cut in December, the data
show. Its U.S. money-market funding dropped to $900 million from
$13.3 billion in October. Loans to Credit Agricole SA, the
second-largest French bank, increased by a third to $1.1
billion. Societe Generale SA remained at $300 million.

Reduced Reliance

“We adapted quickly to the environment and to changes in
the money markets, and our latest results indicated that we are
ahead of schedule on our U.S. dollar deleveraging plan,” said
BNP Paribas spokesman Ilias Catsaros. BNP Paribas had $30
billion on deposit with the U.S. Federal Reserve available as a
funding resource, according to a presentation published on its
website at the end of December.

The lending figures include repurchase agreements, which
are backed by government collateral and have increased as a
percentage of total European bank holdings. Repo deals amounted
to $23 billion in October, making up 16 percent of European bank
securities held at the funds. That marked a 5 percent climb from
September.

French banks increased their use of European Central Bank
funds by 62 percent in the fourth quarter, according to monthly
data published by the Banque de France, France’s central bank.